A look at the economics of breeding, selling and racing thoroughbreds, and at the various players in the racing game, from race track operators to state governments to those of us who are crazy enough to own and/or place a bet on these gorgeous, courageous equine athletes.

Wednesday, February 2, 2011

New York Governor Andrew Cuomo proposed a state budget yesterday, in an attempt to close a $10 billion budget gap. While the Governor decided to end the state income tax surcharge on the rich (taxpayers with incomes over $250,000), his budget imposes draconian cuts on the poor, through massive reductions in Medicaid and in state support for low-income school districts.

But, despite his "no new taxes" pledge, the governor did manage to find a target from which to extract a little more revenue -- horse owners. Cuomo's budget (see pp. 70-72) proposes a 2.75% "fee" on gross purses earned at the track, with the money (some $3 million by my calculation, just from NYRA tracks; $7.6 million overall) earmarked for the support of the state Racing and Wagering Board. The Racing Board, which also charges licensing fees to everyone in the industry, reportedly has only a $2 million annual deficit, so it's not quite clear where the extra money will go.

While Wall Street fat cats with eight-figure incomes are spared any pain under the budget, and in fact get a tax reduction, it seems that thoroughbred owners must be even richer, since, the Governor thinks, they can bear this new tax. Well, perhaps we can. Most of us lose money anyway-- nationwide, purses amount to roughly half the cost of keeping our thoroughbreds in training, not to mention the cost of buying or breeding the horses in the first place -- so what's a few more dollars? I guess the governor is counting on our love of horses and of the spectacle of racing to overcome our rational analysis of what he's doing.

But for some of us, this might just be the last straw. Those of us who race at NYRA tracks already pay a $10 per start fee to the Racing and Wagering Board, or almost $200,000 a year. The new levy would add $3 million to that.

I previously calculated the cost of owning a thoroughbred race horse that runs in New York. That calculation showed that a horse needed to earn roughly $64,750 a year in purse money for the owner to break even. Fortunately, the elimination of the hated detention-barn system has reduced owners' costs a bit. Without the new levy, it would take only (sic) $63,300 in earning for a New York owner to break even. But the effect of the new levy in the Cuomo budget is to raise that amount to $65,700.

At the same time, NYRA purses have been more or less stagnant, at least for those of us who race through the winter on the Aqueduct inner track. Way back in 2002, we (Castle Village Farm) were lucky enough to have a horse that won his New York-bred N1X and N2X allowances in successive efforts on the inner track. The purse for those races was $43,000 for the N1X and $45,000 for the N2X. This month's condition book for Aqueduct shows that the purse for the NY-bred N1X is $40,000-$41,000 (an extra $1,000 for races at a mile or over) and $42,000-$43,000 for the N2X. True, purses at Saratoga have improved a lot, and those at Belmont to some degree, but a lot of blue-collar horsemen and small-scale owners depend on Aqueduct for a large proportion of their earnings.

And our costs have by no means been stagnant. Back in 2002, we paid our trainers a basic day rate of $65. Today, it's $90 a day per horse, nearly a 40% increase, and, even at that rate, trainers generally don't make any money on the day rate. Vet costs have increased, if not quite as much, although some of the costs, for expensive supplements like Gastrogard and Legend, are passed through to the owners on their trainers' bills. And workers' compensation costs, under the quasi-monopoly enjoyed by the New York State Insurance Fund, have risen even faster. So, over the past decade, the average cost of ownership has increased by perhaps 35-40%, while purse money, at least at Aqueduct, has decreased by nearly 6%. Guess we just have to grin and bear it and wait yet some more for slot machine revenues to start flowing into the purse account.

A further issue with Cuomo's proposed 2.75% purse levy is that it applies only to horse owners, and not to the race tracks or to the state's remaining OTBs, both of which are also subject to the Racing and Wagering Board's jurisdiction and both of whose activities generate a significant portion of the Board's workload. For bets placed at the track, or on NYRA Rewards, the net takeout, after state taxes, is split between NYRA and the purse account. For bets placed at the OTBs, the takeout goes primarily to local governments and the OTBs, and the small amount that's left is split between NYRA and purses. So why should the levy apply only to the purse account? If the regulatory costs were borne proportionately by all those subject to regulation, it would be a much fairer proposal.

In the grand scheme of things, I suppose the purse levy isn't all that important. Medicaid recipients who stand to lose their home health care, and underprivileged children in poor school districts who will be jammed into ever-larger classes surely have it worse than race horse owners. But the proposed levy is still a symptom of the ignorance and unconcern with which New York's political class views the racing industry.

About Me

Steve has managed Castle Village Farm's racing partnerships since 1999, and has been going to the races since the 1950s. He's been active in horsemen's and backstretch welfare organizations and, when he's not at the track, has moonlighted as a tax and trusts and estates lawyer and a law professor.